IN FIRM: Optimizing 2009 Billing Processes

by Roman Kepczyk, CPA.CITP On Dec 1, 2008

From the Dec. 2008 Issue

With concerns about the economy and talk of recession, most firms and their
clients are buckling down their operations any way they can. One area that is
getting a lot of attention in our client base is that of improving billing and
collection processes, as many firms still have not transitioned to daily billing
that would allow an invoice to go out with the completion of every client engagement.
The easiest place to begin this process is with the upcoming tax season billing,
as most firms do a fair number of returns where the return can be billed on
its own. We all know that the client’s greatest satisfaction with the
firm’s service is the point at which they receive the return, so it is
obvious that if we can deliver an invoice with the return, we have the best
chance of optimizing collections. To transition the firm to a daily billing
process requires that the owners think about the psychology of how the firm
bills, evaluate the process to capture time and expenses, and use the tools
within the firm’s disposal to make sure the invoice gets out timely.

PSYCHOLOGY OF BILLING
When firms step back to look at how they bill for returns, most will realize
that the amount is highly subjective based on local market rates and what the
biller feels the client will bear. In most cases, if the return is fairly similar
to the previous year, the biller will invoice the return with a reasonable markup
unless there is a significant change in the factors impacting the return (such
as a sale of a property or a divorce). Production on a return can vary depending
on the experience of the preparer and issues with technology or applications,
which firms usually spread amongst other clients, rather than the specific return
that may have been impacted by the problem. Please note that billers are more
aware of these items at the time they are signing the return than a few weeks
later when they may be doing group billing, so it is in their best interest
to bill as closely to the preparation as possible, which would be at the time
of signing the return. If the biller can be provided the previous year’s
amount, the current year’s projected invoice, and an accurate listing
of all time and expenses either on the tax lead sheet or within the system,
they would have the best knowledge to accurately determine the invoice.

CAPTURING TIME & EXPENSES
The key to successfully capturing time and expenses is to do it in real time,
which means daily timesheet entry, release and posting. Studies done in the
past showed that firms transitioning from monthly or weekly time entry experienced
a 5 percent to 7 percent increase in realization. Promoting daily time capture
begins with the owners committing to the process and making sure there are processes
to ensure accountability. This is often enforced with cash “dings”
for each time an owner does not have his time in on schedule. For employees,
firms cannot withhold pay, so a more positive approach is usually called for,
which can include rewards or other firm perks. Today’s time and billing
systems can help administrative staff identify those who don’t have their
time in so they can be followed up on a daily basis until it becomes a habit
(which firms should start doing immediately). Many firms post a listing on the
intranet or bulletin board to promote compliance. Please note that it is critical
for the firm to have a culture of entering expenses at the same time as they
are incurred so that they can be charged for, as well (and not written off because
they were entered long after the bill went out).

When considering the additional expenses that firms may charge for within
a tax return, it is once again important to capture them as incurred, or even
earlier if they can be properly estimated. Some firms enter an organizer fee
at the beginning of tax season. Others enter a processing fee that can include
page counts or charges per specific form printed for the client, including an
e-filing fee that some firms charge for. If these charges cannot be captured
and entered by administrative staff the same day they are created, the firm
should consider going with fixed amounts based on the complexity of the return
or the previous year’s charges. Also, charges that can occur after the
return is packaged may include shipping and courier services, so firms can capture
these by entering an estimated fee (with a reasonable markup) at the time the
shipping slip is created. With all time charges and expenses captured in real
time, it is then possible for the biller to look up all costs that went into
creating the return and determine an amount to be billed. While many firms have
billers do on-screen billing and clear the charges, those that have not yet
adopted this process can have their administrative staff generate the invoice
based on the biller’s instructions. If the biller has the information
they need to determine the bill, they should do so at the time they are signing
the return either manually on the lead sheet or digitally within a work-flow
or tax system so the administrative person knows the amount to invoice. Often
times, firms will delay the final assembly/billing process one day to ensure
that all costs have been captured.

OPTIMIZING COLLECTIONS
Best practices point to placing the invoice on the top of the tax return so
that it is the first thing the client sees when they open their packet. If the
client happens to pick up the return at the office, many firms have trained
their administrative staff to explain to the client what they must pay the State,
the Federal and, by the way, the firm, followed by asking if the client would
like to pay at that time. Nothing improves cash collections like being paid
when the client picks up the return so that it can be cleared, which in turn
reduces month-end billing procedures. For those returns being shipped out, having
an invoice on top will also increase collections, rather than waiting to send
out the invoice a few weeks later with the other month-end billing. One tip
brought up by a number of clients was to include a return envelope to the firm,
but place an actual stamp (not machine run) on the envelope and place it so
it can be seen with the invoice. Firms swear that this creates a psychological
situation that calls the client to pay immediately.

Finally, for past-due amounts and progress payments, the top time and billing
systems have the capability to generate a digital invoice that can be e-mailed
to the client. These systems create and store a PDF image of the invoice, which
not only delivers the invoice instantaneously, but also reduces administrative
costs of “stuffing, sealing, stamping and sending.” Many industries
have transitioned to digital billing, and most clients are already receiving
invoices from other vendors digitally, so they are familiar with the concept.

Let’s face it, no one enjoys month-end billing because it is often difficult
to remember specific issues, particularly during the heat of the busy season.
By developing processes to generate an invoice with every project, not only
will the invoice be more accurate, but it will improve the firm’s collections.
This will then be easier to apply to other projects and services, which will
be increasingly important during these trying times.